Lease Accounting Rule Changes Draw Closer

The long-anticipated change to lease accounting rules is drawing closer to completion, and its impact on fleet leasing arrangements is under careful analysis.

Since 2006, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working on a joint project to establish one global leasing standard. This new standard approaches lease accounting from an asset and liability or financial components perspective. In the U.S., the approach primarily has been a risk and rewards approach, the basis for the lease classification in Financial Accounting Standard 13.

Bill Bosco, principal of lease consulting and training company Leasing 101, recently discussed with Fleet Financials the status of impending rule changes and its significance to U.S. commercial fleet lease arrangements. With more than 36 years experience in the leasing industry, Bosco's areas of expertise include accounting, tax, financial analysis, structuring, and pricing. He is a member of the Equipment Leasing Association accounting committee, a group he chaired for 10 years.

FF: Is the lease accounting change going to happen?Bosco: Yes, it is targeted for completion in 2012 with implementation estimated to be 2012 or 2013. The public will have an opportunity to comment on the proposed rules when the FASB and IASB issue the Exposure Draft of the proposed rules sometime this summer. I urge you to comment. The new rules will affect U.S. as well as foreign companies.

FF: How will fleet leases be treated under the new rules?Bosco: We don't have all the answers yet because they are still working on it, but we know what proposed rules they have discussed. There will be significant changes in your balance sheet, P&L, and lease administration.

FF: How will it impact a fleet's balance sheet?Bosco: Operating leases are "off balance sheet" under current rules. The proposed rules would have lessees capitalize operating leases by recording an asset (the right to use the fleet car) and an obligation to pay rent.